1. Field of the Invention
The present invention generally relates to on-line electronic commerce (e-commerce) and, more particularly, to a methodology and software system for buying and selling products and services based on multiple characteristics. The invention is an extension of traditional auction methodologies and can be applied to automated electronic auctions, such as those on the Internet.
2. Background Description
Auctions have been used as a means of buying and selling goods for centuries. They are recommended as a way for buyers and sellers to conduct a transaction when the fair market value of the goods or services is not well known. Many types of auctions have been invented, analyzed, and used. The literature indicates that there is no single best design for an auction; instead, good design of an auction depends strongly on the goods/services on auction, the size of the market (number of potential bidders), and the characteristics of the bidders.
An auction can be a seller's auction, in which a single entity (person or company) is selling, and multiple entities are bidding to purchase. Alternatively, an auction can be a buyer's auction, in which there is a single buyer and multiple sellers bid. And finally, an auction can be two-sided, with multiple buyers and sellers active simultaneously. The discussion that follows can be applied to all these types of auctions. However, for the sake of concreteness we will consider the case of a seller's auction. Furthermore, we will use the term “goods” to mean products and/or services.
In a typical auction, the characteristics of the goods involved are well-defined. For example, at an antiques auction, the items on sale are often physically in the auction room, and bidders can see and touch them or read a description of them to learn of their attributes. These attributes cannot be changed. The items are immediately available. The only unknown is their value. Therefore, each bidder need specify only the amount he is willing to pay, and the highest bid wins. In other situations that are more typical of business transactions, especially among manufacturing supply chain entities, the value (or price) is not the only mutable attribute of the goods. For example, consider a manufacturer selling a newly completed product. One of the most important terms of sale will be the delivery date (and the closely linked payment date). Of two buyers offering the same price, one willing to take immediate delivery and the other wishing delivery next year, the manufacturer will clearly prefer the buyer that wants immediate delivery, because it reduces inventory costs and improves cash flow. Similarly, suppose the manufacturer is scheduled to complete the product in two weeks. He receives one bid for delivery in one week, and another for delivery in three weeks, both at the same price. In order to choose between these bids, the manufacturer must compare the cost of accelerating the production schedule by one week versus holding inventory for an additional week. The point is that price is by no means the only important variable that an auction should resolve.
The previous examples demonstrated that, in addition to price, delivery time is an important parameter in a transaction. In fact, depending on the domain of interest, there is any number of important transaction characteristics that could be varied and that would affect the seller's choice of the winning bid. As an example, consider a manufacturer of steel who is selling a production run by auction. In the production run, the manufacturer can produce grades of steel with different physical characteristics, such as hardness. However, the cost of the raw materials for different grades may not be the same. Consequently, selecting the best bid will depend not only on the bid price, but also on the grade of steel specified with the bid.
In the examples given above, the additional transaction attributes (delivery date and steel grade) affected the cost of the transaction, and could therefore be translated into a monetary value for comparison with the bid prices. If this were true in general, then selecting the winning bid would always be simply a process of evaluating the cost factors associated with all the bids' attributes, modifying the bid prices according to these cost factors, and choosing the bid with the highest modified price. However, there are transaction attributes which cannot be completely characterized in monetary terms. Continuing the example of the manufacturer that plans to complete making a product in two weeks, suppose that changing the production schedule to deliver in one week requires delaying an important customer order by a week. In addition to possible money costs resulting from the late delivery, the manufacturer incurs a difficult-to-quantify liability arising from a customer satisfaction problem. More generally, there are transaction characteristics which cannot be adequately expressed as monetary factors. This fact implies that there may not always be a single “best” bid in a multi-attribute auction.